Posted
by
Roblimo
on Thursday December 15, 2005 @05:03PM
from the venture-capital-is-like-fatty-foods-for-startups dept.

Dave Rosenberg, Principal Analyst, Open Source Development Labs, contributed this commentary piece:
Despite all the open source
software and services
companies funded in 2005, the associated business models are still
considered
experimental and unproven. The new crop need only to look to the past
avoid
missteps. At the Open
Source Business Conference in
November, VCs and open source software company executives wondered
aloud if
what we’re seeing today is a “bubble” of
open source
start-ups being funded. One
journalist’s recap
of the event cited $144 million in open source start-ups receiving VC
funding
in 2005, double the venture capital flow for open source start-ups in
2004.

Bubble or not, there is a company that every would-be
open source start-up investor should learn a lesson from: LinuxCare.

LinuxCare
was born in 1999 -- venture-backed by top tier VC firms like Kleiner
Perkins, with total
funding in the ballpark of $70 million.

Those were the frontier days for Linux. There was
a ton of industry interest and activity despite the fact that the jury
was
still out with respect to end user adoption. Nobody really
knew exactly
how Linux was going to be used – would it be for the desktop,
servers,
etc.? The company used the vast venture coffers to promote
the brand and
staff star-power (even Linus Torvalds consulted for them
briefly)– and
LinuxCare quickly became the recognized name for Linux services and
support,
doing work for big systems vendors like Dell and IBM in addition to
developing
device drivers and offering education services.

Red Hat had the Linux OS and
software, VA Linux had the
hardware – and LinuxCare had the services. It was a
theoretically perfect
enterprise Linux ecosystem triumvirate.

But it wasn't meant to be.

The demise of LinuxCare can be attributed to many
factors. The first was that enterprises were slow to adopt
Linux
– in the early ‘00s, IT spending came to a grinding
halt
with the dot-com and stock market crash. But the key factor
to
LinuxCare’s spectacular death spiral was the fact that they
were going up
against Red Hat, the very company they were basing their business on.
Red Hat
not only developed their own distribution of Linux, but also started
offering
support for it. Red Hat offered a one-stop shop for Linux software and
services
regardless of hardware. Enterprise
customers decided it was easier to buy from one vendor. This same
sentiment is
what drives sales of Microsoft software in enterprises today.

LinuxCare suffered a painful public death over months
of executive departures and layoffs, VA Linux abandoned hardware for
software,
and RedHat, with the cash to weather the tech spending downturn,
expanded its
revenue streams and became the de-facto enterprise Linux distribution.

It's easy to dismiss LinuxCare as "ahead of their
time", which is definitely true. But the fundamental and fatal flaw was
that they based their products on someone else's IP, with no IP of
their own.
When the market tanked abruptly, LinuxCare didn't have the money to
weather the
storm and didn't have consistent alternative revenue streams to combat
the lack
of services income.

Some of the executives from
LinuxCare went on to start
a new company called Levanta, which focuses on Linux systems
management. They
have since developed IP in software and hardware that can sustain the
business
beyond the services revenue.Their LinuxCare experience taught them how
to build
a sustainable technology business model on top of open source software.
No longer
do they rely on IP that walks out the door every night in their
employees'
heads.

In the end, it all comes down to
IP. Building a
business on top of something you don't own is extremely risky.
Companies need
to develop their own IP to be innovative and have competitive
differentiation.
And if they don't develop it themselves, they need to acquire or
license the
relevant code to protect themselves and ensure they aren't caught
without
alternatives.

An Open Source Danger
Zone?

In my eyes, the bubble associated
with open source is
less related to the millions of VC dollars and more related to the
reliance on
software and components that are not part of a company's internal IP.
When
Oracle
acquired InnoDB,
it had a less than positive effect on MySQL, but MySQL is a smart
enough
company to not bet the farm on something it doesn't own. It owns enough
IP to
sustain its products-and it's business from the risk associated with
relying on
someone else's code.

IT Groundwork has built a business
on top of an open
source network monitoring project called Nagios. They don't own the
copyrights
and they don't employ the creator. Kleiner-backed SpikeSource offers
"certified stacks" of open source software components, but they don't
actually create the open source components themselves.

And in SpikeSource's case, Red Hat announced that
they too would offer "certified
stacks." Who do think is going to win that battle? Red Hat, the
one-stop
shop that offers the OS and the apps, or the company that offers merely
a
portion of the total package. Does SpikeSource have the IP or
alternative
revenue sources to withstand Red Hat? Let's wish them
luckand hope they
know the LinuxCare tale.

If there is a bubble, it will burst when the open
source projects these new company's products and services depend on go
private,
fork, or get acquired. The market for open source is so new we haven't
seen
much of this yet. Only time will tell if the recently funded open
source
companies can build sustainable businesses, or if this grand experiment
will
result in a few 800 pound gorillas and many tiny monkeys.

I wish business were that easy. It's not just about avoiding the mistakes of your predecessors, though that's probably a necessity.

Right. It's also about doing the same things right. I saw a presentation by Bill Matthews of Hurricane Labs [hurricanelabs.com] (no affiliation). He was presenting on building a company on open source. He said that number one thing is to not take venture capital. He said that the investors will likely force your company in a direction in which you do not want go, if it means they think they will get a higher return.

Basically, he said to start small and self-fund as much as possible. That is what he did and he claims that he and his partners were able to make Hurrican Labs profitable in two years. When I start out on my own, I plan to at least give self-funding a shot before seeking venture capital.

Unfortunately, the scope of some business plans make self-funding impossible for those of us without a couple million sitting in the bank.

One of the mistakes a lot of startups make is to take the first VC offer they get. It's hard to get funding sometimes, even for the best of concepts, but startups should vet their investors as much as the investors vet them.

Unfortunately, the scope of some business plans make self-funding impossible for those of us without a couple million sitting in the bank.

You're right. Some business plans, generally those that involve manufacturing, will take a good bit of cash. Software companies have extremely low barriers to entry, and thus software companies should not need very much at all. I can't even begin to understand why VC's would think that a software company would need any more than $50K to start.

I can't even begin to understand why VC's would think that a software company would need any more than $50K to start.

You gotta assume that anything halfway decent is going to take at least two or three people at least two or three months. 50k would not even pay the rent aorund here for two people for 6 months, not to mention food, etc. Plus you have capital requirements like a server and some desktops, and an office. Hell the office alone would be 10k for six months.

I managed to turn a $25K credit card into a $1mil+/year business in 3 years. Now, granted, that's very, very unusual, but the same principles apply.

The way I'd do a software start-up:
- Keep current job. Unless you're wealthy, you still need income. Don't expect a dime of income for 6 months-year. Work 8 hours a day, and program on nights and the weekends. If you expect ANY free tiem for the first few years, you'll be sorely disappointed. Imagine a newborn baby, but maybe twins.
- No office. They're a complete waste of money. Work at home and meet clients at your local coffee shop. An office is a luxury that you can get any time.
- For a server, grab a used PC for $100. Unless you're doing intensive graphics, or biological number crunching a "server" is a waste.
- Payroll: None. Either do it yourself, or bring in partners. But to expect to be paid at the beginning is unrealistic to the extreme. Remember, you don't even know if your idea is going to generate a nickel at the beginning.
- Food: Ramen Noodles and peanut butter.

I'm completely serious about this. This is how most successful start-ups work. Why? Because with lots of cash at the beginning (like $100K), you don't need to worry about costs, and that's a great way to start a terrible habit. Learn how cheaply you can run your business and still get by early on. Bust your ass, and *make* it work. There's no incentive to make it work if you've got tons of other people's money. Most companies also don't get any kind of financing right out of the gate. We're 3 years old, and just now looking for our first outside investors, and that's considred premature for most new businesses. We can do it beause we've had very strong growth, and most importantly: PROFIT.

What I'm describing is incredibly difficult, but it's the usual way successful companies are formed. Most of those dot-bombs with millions and millions blew threw it at an obscene rate, and still never generated a single dime of income.

One of the problems with having such a lean period, though, is that it is VERY tempting to accept any VC offer in the first round of funding -- this is where some startups lose control of the product.

Basically, though, what you're saying is that for software startups, you've got to have a product (even if not complete) before you should try to get funding. No surprises there, and I was working off the assumption in my previous posts that yo

It's a BUSINESS. You have to know who you are going to be selling to, and what margin it is.

I worked as stockbroker in the 90's and you would not believe the number of prospectuses that said something along the lines of: We have never sold our product/service and we have no reasonable basis in fact to believe that anyone will ever purchase our goods or services

I've been involved in a startup for several years now that is in just that (unenviable) position. If you have multiple VC funders, you can play them off one another to some degree. However, this in itself is work that's way off topic.If you have just one, they become your overlords in all but name. If you are very, very lucky, they have some real experience in your chosen field and allow you some latitude when it comes to decision making that costs additional money.

I am running a company. This is my second shot at it. I walked away from the last time since I had some unresolved issues with my partners and I felt that it is better to start from scratch than to waste all that bile. The first one I started about 4 years ago, the one I am currently running I started about 2 years ago.I have funded myself for the most part - and only twice - both were low value loans to tide over a temporary cash flow problem. Once I borrowed some money to pay off some salaries when two of

Mr. Matthews obviously isn't well versed in the areas of high finance, nor business/economics in general. The whole point of running a company is to MAXIMIZE shareholder value -- any actions taken outside of that context and you better start calling yourself a charity.

Too bad you haven't taken a couple of econ courses yourself. When you have a partnership or sole proprietorship (e.g., most of the businesses in existence since the dawn of time) the only actions that you take are the ones that benefit you.

There are at least two other groups that you neglect that I can think of off the top of my head.
I myself am attracted to opensource as a geek because I like to read code and see how things are done, but make no mistake that is not the primary reason for using open source. The primary reason is to get other work done... A computer to me is just a lump of metal and plastic, what's important to me is what is done.

I really hate to be an asshole here, but you know what I am tired of? I'm tired of every two-bit geek thinking that he's going to come up with a revolutionary idea, be able to implement it and be the next billion-dollar sell-out to Fox News Corp or Yahoo!.

The 90s are over. I hate to break it to my fellow geeks, but being successful in a startup was always a risky proposition even in the heyday. Your best bet, now, is to learn how to properly brown-nose and pick up lots of business and office-politics skills and make yourself satisfied with the "employee" thing. Working for other people kind of sucks, but it's better than suffering grand delusions of greatness.

Then again, it's christmas time and I like being a grinch. So go suck a glass ornament.:P

I don't see any reason why geeks can't come up with an idea for a start-up and become a millionaire though. It takes more than business skills to become a billionaire. It takes greed and a great deal of luck.

Ah, well, I do agree that someone can collect that much money over time, perhaps toward retirement, or perhaps in total assets in their business - in cash, before the age of 35, what we think of when we think of a "millionaire", I'd say the percentage is incredibly small.

If it is luck, why are there basically no out-of-work millionaires (outside of sports) - even though you have heard of many people that lost it all. In fact, most commonly you hear about the people that worked up to millions, lost it all, and then worked up to millions again.

It isn't luck - that's what people say who do not have the dedication or risk accepting attitude. You can always use whatever luck you have - there is always some option.

That said, there is a lot of luck involved - but it determines the level of success, not who is successful.

What you are doing is easy. Unfortunately 1 million won't be enough when you and I retire (I'm 24).

Sending kids to college alone can be a 250,000 expense. A nice house in an urban area is at least 3/4 or 1 million.

If you don't want to ride the debt train forever your best bet is to take risks young and shoot for the moon a few times. If you hit it, you win it, if you don't, well you'll hopefully be smart enough to just get a job and eek out the debt lifestyle.

Your best bet, now, is to learn how to properly brown-nose and pick up lots of business and office-politics skills and make yourself satisfied with the "employee" thing.

I hear what you're saying. Our fellow geeks may want to think of other opportunities outside of OSS, if its that bad. I, for one, am doing that. And these days with IT being a must for a successful business (you can't do things with those old fashioned book ledgers by hand and expect to keep up with the competition.), it gives me some confi

Here's where I see the biggest problem, as an example:Currently, I earn about six figures.

-Most startups fail.-Any successful startup tends not to even turn one time of profit for two to five years.

So . . . how long is it going to take me and my earth-shatteringly brilliant idea to finally start turning six figures in PERSONAL PROFIT per year? And once you've accomplished that - what's the big deal? You've now invested FAR more energy, time, money and financial stability (loans) to get what you already had

Yeah except gamblers in vegas don't get to burn through millions of VC money.Get funded and the party has begun ! High class hookers,mountains of cocaine, convertable vintage corvettes, company boat parties around manhattan or the bay.
Succeed or fail its still a crazy wave to ride. I miss the good old days even though my stock optionswere worth $-85,000 at the end of it all. Oh, and some computer stuff gets done in there somewhere.

There's a middle position between the "employee" thing and the "multi-billion sellout to Yahoo!" thing. It's called small business. I'm in Austrlia, and the business economy here might be a lot different to the US, I don't know. But just from my immediate aqaintances, I know a guy who runs his own graphic design business, a guy who does installation and setups of digital theatre systems (conference rooms, lecture halls, home theatres) and an electrician.

These people generally spent a few years working for someone else, got a knowledge of the business, then setup for themselves. In the case of the designer, when he quit, he came away with a ready-made group of clients who followed him from his last job. None of them make millions, but they each make enough to support themselves fairly well.

If you want to work for yourself, work for someone else long enough to learn the ropes. Do a quick management course to help you pickup at least the basics (book-keeping, tax, information privay laws, industry-specific legislation, etc). Save up enough money to keep your head above water for your first year should it prove to be a lean one and give it a shot.

And the really good thing is, I don't have to be worried about all the stupid industrial reforms the government just passed.

Geeks rarely exhibit the behaviors and habits of successful business men. Hell, if you can't even be bothered to shower, how can you be expected to bother to show up to work and meetings and run your business? Further, geeks tend to push aside the important things and focus on what (to them) are the "fun" things. That doesn't help anyone succeed.More importantly, as geeks are fond of saying "I'm an engineer - not a manager". They don't want to be bothered with business things. They want to sit in a dark roo

Geeks rarely exhibit the behaviors and habits of successful business men. Hell, if you can't even be bothered to shower, how can you be expected to bother to show up to work and meetings and run your business? Further, geeks tend to push aside the important things and focus on what (to them) are the "fun" things. That doesn't help anyone succeed...Frankly, I just don't think geeks are cut out for business and running their own companies

Apparently you don't hate being a dick and/or asshole enough that it stops you from posting. Therefore, I suspect you secretly LIKE taking those roles. That's not an unusual thing here at Slashdot by the way... don't feel like the Lone Ranger. I've done it myself a few times. Like, right now!

By the way:
MySpace.com.
(essentially) zero to $500,000,000 in about 18 months.
It's just too much of a lure for normal people to resist, despite the reality.

Your best bet, now, is to learn how to properly brown-nose and pick up lots of business and office-politics skills and make yourself satisfied with the "employee" thing. Working for other people kind of sucks, but it's better than suffering grand delusions of greatness.

Yes, please listen to this...the less people I have competing with me, the larger my share of the market is!

Seriously, not everyone out there will "make it big", but pulling in a 100-200k a year salary running a small business would be

Running a business is not for everyone. In that I agree with you.But it is worthwhile to give it a shot to see if it does really work out.

I will let you on a little secret - it is not a "revolutionary" idea which is going to make/break your company. Your success as a businessman/employee/sportsperson is defined by a three simple words - reliability, consistency and inexpensive. You can make it really big in anything if you are consistent, reliable and inexpensive.

The demise of LinuxCare can be attributed to many factors. The first was that enterprises were slow to adopt Linux - in the early '00s, IT spending came to a grinding halt with the dot-com and stock market crash.

They were just ahead of their time. Like Go computer was. Now, there's a market for handheld and tablet devices. OSS' time will come. When, if I knew that, I'd be investing/starting something myself!

I've worked with and for a handful of Linuxcare peeps and my impression of them is... well... unfavorable. Generally less-than-talented, albeit good intentioned.

Using Linuxcare or VALinux or even Redhat to judge the financial viability of open source companies doesn't paint a complete picture. The number of companies deploying open source technologies in their production infrastructures, embedding Linux in their hardware and porting their software in order to save their customers' hardware budget, these are a better barometer of the movement's success than the attempts of the aforementioned companies to make money off of something which is intrinsically free.

The number of companies deploying open source technologies in their production infrastructures, embedding Linux in their hardware and porting their software in order to save their customers' hardware budget, these are a better barometer of the movement's success than the attempts of the aforementioned companies to make money off of something which is intrinsically free.

I agree. Open Source is a production method (like the assembly line) not a business model. There are both successful and unsuccessful comp

I'm not sure where you worked or for who, but let's see, just off the top of my head:Andrew Tridgell (Samba, Rsync)Paul Mackerraas (Linux on PPC)Rusty Russel (iptables and lots of other kernel stuff)Rasmus Lerdorf (PHP)

in Italy, we had Alessandro Rubini, Paolo Molaro (now doing some really good stuff with Mono), and a bunch of other talented guys. The group in Canada also had some very good hackers. In short, there were a lot of smart people there - I doubt I'll ever see anything like it again.

Instead of charging an annual support service fee on a free product as many companies do, EnterpriseDB uses a "plain old software license," Astor said. The only difference with closed-source providers is that the EnterpriseDB database is based on PostgreSQL, an open-source product.

So, PostgreSQL gets more users, EnterpriseDB has programmers actively working on the code, and since PostgreSQL is BSD-licensed, EnterpriseDB can have a closed-source product whil

So, PostgreSQL gets more users, EnterpriseDB has programmers actively working on the code, and since PostgreSQL is BSD-licensed, EnterpriseDB can have a closed-source product while continuing to contribute code/docs/feedback to the project.

As far as I understand the BSD license, the problem with the above is that EnterpriseDB has no obligation to contribute the code or documents it generates back to the PostgreSQL project.I wouldn't mind a license that allowed companies to close the source, but forced th

Yup, that's correct, there's no legal obligation. They are never forced to contribute a single line of code.

But at the very least they'll be a success story for the project and will spread awareness of it. And it's in their interest to have bugs in the core platform fixed, so they probably will contribute something occasionally, if only a bug report or two. At least, that's been my experience on other BSD projects; it all seems to work out fine...

From the VC's point of view, LinuxCare doesn't seem like a bad idea even in hindsight. If things had played out differently and Linux had a 25% desktop market share (which, for all anyone knew, was possible) LinuxCare would be sitting pretty today, even with their obvious managerial problems. It was a bet that had to be placed, even though it wound up coming up empty. VC's make their money on hitting enough lucrative longshots to make up for all their losses.

Anybody looking at the notion of Linux on a business *desktop* back in 1999 - 2000 (RH 6.0 days) with a shred of sense in their head would know that it was not a good investment at the time... the applications were not there for business or home use, and arguably, still have a ways to go. Any VC who made bets like that with my hard-earned money would not be given a second chance to gamble on my dime...

Mulligan had once been the richest and, consequently, the most denounced man in the country. He had n

When I was laid-off some years ago I tried the same thing. It just wasn't the right time. Oh sure, I had a few good sales go through, and I made money. The problem was that kids and the wife like to eat regularly. I was scared of venture capital (shouldn't have been) and I didn't have enough of my own money. What I made went back into the business.

I think that Open Source businesses are yet to hit their prime, and when they do, it will be big. If I were to do it again, I would offer both open source and proprietary, and sell the benefits to Open Source. Some companies are not ready to try open source yet. However, when you say "Mr. Customer, I can do that for $10,000.00 plus $4,000.00 in services. OR...I can use this open source utility which will give you every thing you want, and it will only cost you the services..."

I think that would have made it better. Just a guess, but it was fun trying.

However, when you say "Mr. Customer, I can do that for $10,000.00 plus $4,000.00 in services.

Wouldn't you WANT them to buy the proprietary software? More money for you...

I love the concept of Open Source business, but I have trouble envisioning them existing anywhere other than for enterprise-level services. That's not to say OSS won't be used on the desktop--that's already happening with products such as Firefox or OOo. It's just that I would imagine that, at the home-user level, nobody would pay for

What exactly do they mean by IP? They don't seem to
understand that RedHat releases all the code
the write under the GPL, and most of the code
in their distro doesn't belong to them in any
sense at all. RedHat has a brand, it doesn't
have "Intellectual Property".

They know absolutely nothing about what happened to
LinuxCare, except that it tanked. My impression
is that it's a good example of a geek-founded company
taking on Professional Management to keep the VCs happy
and getting royally fucked over by the Professional
Management with the Impressive Credentials.

Suits never want to take the rap when suits
screw-up. You can bet that if the geeks had
tried to maintain control and tanked the company,
the business press would never stop yammering
on about how they obviously needed
Professional Management.

IP means the knowledge required for future development of a product. For traditional companies (e.g. 'closed source'), it takes the form of patents, documentation, and trade secrets. For 'open source' companies (e.g. companies that hope the community knows more about their target market), IP takes the form of developers who knows the source code inside and out.For RedHat, it doesn't matter if their source code is out in the open. What is valuable to them is their network of developers (e.g. mindshare) and t

IP, aka "Intellectual Property" has always been a pretty
dubious term to apply to things like copyright and
patent, but trying to stretch it to include things like the reputations
of the people working for you is pretty crazy.

What you're saying is what I was saying: they
have a brand. They have no "IP" to speak of.

You make developers sound like chattle. Nice. "IP", as far as a VC is concerned, refers strictly to things you can Patent or Copyright (and they REALLY like Patents over Copyrights for some bizarre reason- never mind that you need a lot of money in most cases to enforce the things...); expertise to carry a product or someone else's IP forward is called "expertise" on the balance sheet and doesn't carry as much value to the VC's unless you're THE player in that game.Red Hat didn't have IP for the most part

Looks like you proved the article made unfounded guesses. Then you make some of your own.
Just because some of what the author said was wrong doesn't invalidate the entire article. Service-only businesses are extremely volatile, and he was right when he said clients often like one-stop-shops to reduce costs.

> My impression is that it's a good example of a> geek-founded company taking on Professional Management> to keep the VCs happy and getting royally fucked over> by the Professional Management with the Impressive Credentials.

Bingo. I joined Linuxcare in early 1999 as employee #27, and stayed until January 2001. For a while it was paradise. I mean, who wouldn't like having Rasmus Lerdorf and Andrew Tridgell working a few cubes away? The level of talent there was really rather spectacular.

But then . . . . a couple of very bad VC-installed apples at the very top of the company destroyed the place by a) squandering the funding on absurd levels of growth and infrastructure, b) failing to IPO in time, and (worst of all) c) creating a geeks-vs-suits culture that came to consume everybody in petty office politics. In a reversal of stereotype, it was the original founders who had the most sanity. They held the tech talent in place as long as they could.

Sure, Linxucare's open-source services model was a little ahead of its time but the company, leaned down, could have hung on through the bursting of the bubble and eventually come to thrive. Its confidence that Linux had a future in the enterprise has been more than vindicated. Now, it's IBM Global Services and similar scooping up all the Linux services income. Sigh, what could have been . . . .

a) squandering the funding on absurd levels of growth and infrastructure, b) failing to IPO in time, and (worst of all)

Seems to me that A is pretty much the standard prelude to B in VC-backed explode-o-pop companies. How else did you want them to go about doing an "IPO in time"? Given that it all came down to gambling that you'd get out before the bubble burst back then, I can't help but think that the problem was that the failure was in not building a viable business...I'll certainly concede that it coul

It is shorthand for I'm a clueless buzzword user. Just look at all the IP the successful companies that support Microsft systems own, urm right virtually all of it belongs to a handful of big players, most of whom don't deliver such support services themselves but supply the software market for such services.
The reason they survive is because there is a large market for their services.
Most of the big.com companies I worked for were a few years too early, and badly

As a developer who has written a lot of code for a lot of people over the years, I find it incrediable how you can call open source a business model. Open source is not a business model, simply because the objective it free code, which in no way supports any ones business goals - other than some other business'es desire to have something for nothing. Lets face the facts: open source is a code pool used by independant developers to build solutions for a few (maybe more) of their clients. We have a pool of code which we can use to build some really neat stuff (when we can get it to actually work!) Now, I am in favor of open source, because it is good for software people - but software people are not necessarily business, and it does keep the pressure on m'soft, to build better systems. I seriously doubt that real geeks are behind any of this, because most of us know there is no open source business model. Unfortuantely there are the next level business types who want to cash in, but are generally clueless about the technology actually involved. As far as I can tell the open source model allows independant practioners to develop prototype solutions, demonstrating what can be done at a very low price, which business people take to their m'soft geek and say I want this! He eventually delivers something, making them happy. As these systems bubble up to m'soft's attention, they develope targeted packages, plugins, addin's whatever to hold onto said customers. Open source is a developer model; A business model it is not!

True. Open source does not have enough information to be a business model, but open source can be a part of a business model. It can me part of a business strategy. Sun Microsystems, for example, is heavily adopting an open source strategy, even to the extent that they are open sourcing thier OS, and CPUs.

So when you see open source business model, think business model that includes an open source strategy. Most models then include some sort

You can also add Apples OSX operating system, based entirely on Berkley Unix. From using this system I wouldn't now touch an operating system that was now open-source.

Now Apple sell their operating system, packaged with a bunch of other stuff, but the core underlying operating system can still be downloaded and free. The reality being that I've not the time to recompile an entire operating system - even if I did know how - so I've rather buy it done for me in a box. And this is very much part of their bus

Yep.. Thats been our experience also. Take a look at CodeCogs [codecogs.com]. Over 10000 downloads in 4 months, great customer comments, yet only 1% pay for the software within a commercial environment, and few than 30 people have contributed back into the system.
Ok, maybe this site is one big fuck up.. Fortunately our aim isn't to directly make money from this site, we're really just opening up our own internal library to attract critical feedback and thereby improve the quality of the softare. Plus its our little bit

No, it can be part of a coherent business model as well. For example, Sears needs an ecommerce site - so they need a stable, secure web server. The market does not really fill their needs - so they need to make a custom web server. They can either spend $X M dollars and build it themselves, or they can spend $X/Y dollars and start from an open source product. The key is that the shared development work on the web server is worth more than the stategic advantage of having a completely custom web server.T

When LinuxCare started, I called them about getting support from them. There were several plans, including just paying $350 "per incident". I thought about that for a while and concluded, that $350 was OK if they gave me a workaround or patched the software, but I was leary that they would take my money and tell me what I wanted wasn't supported. Almost any Linux problem can be closed as "not supported", since there is no real spec. (That applies double to windows). I didn't have any way of knowing what the

While your story is nice it's not factual. Your article while interesting is based upon some assumptions that were prevalent outside the company. The real inside story was much different.

The key factor as you put it "But the key factor to LinuxCare's spectacular death spiral was the fact that they were going up against Red Hat" was not even a factor. The primary factor was bad management brought in by Kleiner Perkins. The original team had a good idea, but the VC's thought they knew better then the guys who understood Linux and the time and place.

KP forced a bad management team, the team made/forced some incredibly bad choices, to the point of criminal activity. Money was spent like water down a drain. Without the help of the bad KP choices LC would still be a going concern, in fact it would be what OSDL is now, it was headed there, just was destroyed by bad management.

There were no executives from that time that went on to become part of Levanta, there was a single executive that was hired after the demise of the KP team, he was a bean counter with no leadership experience.

The real Linuxcare people had IP ideas that could have been developed, but they were not allowed to develop it. The current product that Levanta is currently touting is 4th or 5th generation of one of those ideas that was started on the sly by folks on tiger teams who tried to save the company after the KP management team was forced out. Too little too late.

Linuxcare was ahead of it's time but they had the cash to stay the time, they had the team to make it work, they were forced to take bad management at many senior levels.

Dang, I wish I wrote this. There was a lot of brilliance at Linuxcare. In many ways, it was like working in an academic environment with some brilliant people. But yeah, those downsides were a killer, as was the million-to-one reverse stock split.

Well you got your facts completely incorrect. Linus never worked for or consulted with LC. The problem was not RedHat or IP. Further more Levanta is not a new company but in fact Linuxcare after a rename. How did you miss that? Linuxcare is still around, just has a new name and on yet another set of executives. I still have stock, though it's worth about a roll of TP, maybe not that much and worse it will never be worth anything.So I'm not sure what the value of your point is since all of your facts are inc

Most business fail. I can't remember the statistics, but it was miniscule amount that manage to survive past five years. I'm not talking Linux support businesses, I'm talking ALL businesses (in the US). The holy grail of "Viable Business Model of Open Source" is a myth, because we still haven't found one for any other industry.

It's like dieting. No matter what the diet fads are, the only way to lose weight is to eat less and exercise. Similarly, no matter what the Open Source pundits tell you, the only way to keep a business running is to sell a product or service other people are will to pay for.

The Open Source fairy going to come along and give you a magical business plan. So start eating less, exercising more, and selling a product people want.

Hi,
I'm not sure thats entirely correct. The stats behind business success, depend very much on how the original company is structured. A new company with one director has a 25% chance of success. A company started by 2 people, suddenly had a 65-70% chance of success. 3 people raise this to about 80-90%, again I forget the exact numbers of last year in the UK, but I'm sure you'll get the picture.
If you have a distributed management style you can also raise your chances; its all about that fact that one pe

new company with one director has a 25% chance of success. A company started by 2 people, suddenly had a 65-70% chance of success. 3 people raise this to about 80-90%, again I forget the exact numbers of last year in the UK, but I'm sure you'll get the picture.

So you're saying if I walk into a bank with two other partners, the bank will think, "Wow, 80-90% chance of success! Give them the loan now!"

Sorry, but I have to dispute your claim that nearly all UK startups with 3 directors are successful. That's an

You don't have to take my word for it.. Talk to you local New Business Adversers. However think about this: You try finding 3 people, all willing to invest and give up their day jobs for some new idea. Collectively they'd be very critical of the business aims etc, and as a result it'll have a much higher chance of success.
Secondly, Banks don't give out unsecured loans on businesses, esp new ones.. Thats why small companies look for angels to get VC etc + look for funding from various Government trusts etc

I guess this is a good example about why RMS suggests avoiding the term IP. As for the companies mentioned, I think the real reason they didn't go anywhere was because they were trying to serve a market that didn't exist.Since most of the shops who adopted Linux ended up coming from Unix, they didn't need these companies to hold their hands through every command issued at the prompt, and since Linux runs on commodity hardware, the value add of "Linux-compatible hardware at exhorbitant prices" wasn't reall

The author missed the biggest problem with LinuxCare: it was a terrible idea!

I'm sure the VC people made it sound great... "10 billion eyeballs looking at thousands of Red Hat Linux servers... someone needs to support the servers!"

The problem is that they were a third party in a commodity business. If I buy a server from IBM, HP or Dell, I'll get hardware support. Linux support is and was available from Suse,Red Hat, etc.

So where was the growth? If Linux failed, Linuxcare would be out of business. If Linux took off, IBM, HP, Dell, Sun, etc will offer support themselves, with established professional services groups to make it easier.

May be I just missed your point, but why would IBM, HP, Dell, Sun, etc out source their professional support services if they could do them in-house (per se) cutting the middle man (and all that extra money) out? Today, companies out source to other countries because they can pay pennies on the dollar. With LinuxCare that wasn't a choice. LinuxCare was based in California.

Hi, this is Dave who wrote the article.You can make profits from services and support, if not from the software directly. At least, thats the standard line you hear from most OSS companies. I don't think that the system is dominated by GNU.org, at least not in a negative way.

Many GPL'd products are doing just fine, MySQL as a major example.

The whole point of this piece was to show that investors-and many in the community are being naive in thinking that they can make money easily. It can be done, but it's n

Hi, Dave here. I finally logged in. FYI-I never worked for Levanta, nor do I know if they need funding. I think the LinuxCare story is an interesting business case, especially as it relates to open source companies that continue to get showered with cash.
You are correct in your comments. The management pissed away alot of $$$. The whole point of this piece was to show that investors-and developers need to pay attention to the world around them and not get caught up in the B.S.
LC could have survived, but